program through the issuance of letters that could be implemented in a matter of months and not years. because the increasing cost to taxpayers has grown. congress must act now. to protect our seniors, i introduced for 69, allowing the fha to implement reforms given the authority of the mortgagee letter to reduce the amount of sustainableed to levels, perform assessments to determine if the loan is affordable, and establish tax and insurance set-asides through escrow accounts to prevent foreclosures. i firmly believe giving fha the authority to make these changes will expedite at aj's ability to ensure long-term sustainability for reverse mortgages. i hope our panelists will address this issue. while we certainly understand that there is much more work to be done to address reverse

mortgages, i believe we must pass this legislation to begin debate. with that let me welcome -- i think this is our first hearing. senator moore ran, i look forward -- moran, i look forward to working with him. >> i look forward to working with you on this and other issues as well. i thank you for calling this subcommittee hearing to discuss the home-equity conversion mortgage program. , americans have had the impression that homeownership is is the financial corner store and -- cornerstone of our society. ability -- the inability to access wealth in a home could be damaged if steps are not taken to improve the reverse mortgage program. since the first program was made more than 50 years ago in

fairway, kansas, american seniors have utilized this program in increasing numbers. it is clear it is popular. it is critical that the potential tremendous strain that the program has placed on the fha insurance fund is addressed and a meaningful way. when fha operates in a safe and viable manner, many deserving borrowers get the assistance they need to make their home and all -- home ownership dream a reality. that is jeopardized by the current financial status of the mutual mortgage insurance fund and the role that the program has played in that function. , thisk you are right conversation is critical. we need to make certain that not only is home ownership possible for millions, but that the value and equity in that home can be accessed without tremendous exposure on the part of the american taxpayer. i look forward to hearing the testimony of our witnesses. >> thank you, senator. let me welcome and introduce our panelists.

the senior strategic policy advisor at aarp. she is an economist and an expert on the bond market. a staff attorney with the national consumer law center where she heads the elder rights initiative. senior director of economic security of the national council on aging. the president and ceo of the national reverse mortgage lenders association. thank you for being here. i will ask you to more or less summarize your written testimony in about five minutes or so. your full testimony will be included in the record without objection. over here.rt >> chairman menendez, ranking member, and members of the subcommittee, thank you for the opportunity to testify on behalf of aarp on the long-term sustainability of reverse mortgages and the impact on the mutual mortgage insurance fund. nonprofit,est

nonpartisan membership organization representing people aged 50 and older, aarp advocates for policies that enhance and protect the economic security of older americans. long history of involvement with the home equity conversion mortgage program. throughout the life of the program, we have advocated for consumer protections and to develop policy recommendations to address the changes in this market. we are honored to be here today to present our views. mutualt that the mortgage insurance fund may require an appropriation from congress in fiscal year 2013 is a serious matter. fundargest driver of losses is the sharp decline in house prices, combined with a large number of loans originated during the height of the market. higher loan proceeds and lower premiums that existed previously -- the fund experienced a major shock. steps tolready taken

address this by lowering principal limits in 2009 and again in 2010. also by raising upfront mortgage insurance premiums on the standard product and ongoing premiums on both standard and savor products. it is important to understand that making changes to the current program will shore up the fund going forward, but these changes are unlikely to eliminate losses from loans made in the past. we suggest the following steps be taken to strengthen the tax andand the fund -- insurance defaults must be addressed. it nearly 10% of active loans were in technical default for non-payment of property taxes and or homeowners insurance as of 2012. given that defaults have been a problem since the beginning of the program, and that this program -- problem has been documented for over a decade, a

resolution, while not an emergency, is long overdue. aarp supports the use of financial assessments to examine a borrower's ability to pay property charges and ongoing expenses. however, we do not believe that credit scores should be part of the financial assessment. rather the determination should be whether borrowers have the ability to meet their obligations, and this should be determined after taking the cash flow from the potential reverse mortgage into consideration. public should have the opportunity to comment on the specifics of proposed changes during the normal rule- making process to ensure that proposals contain adequate consumer protections and are reasonable. bep recommends that hud required to evaluate the program every two years and report to congress. hud has failed to act to address problems with the program and a timely manner. we believe that regular

evaluation and reporting to withess will provide hud much needed encouragement to address problems that will ultimately protect the program and taxpayers. regulations are needed to ensure that consumers receive a loan that is best suited to their needs. consumernd, the financial protection bureau should promulgate suitability rules. in the current environment, lenders are permitted to recommend any loan product without regard to the needs or objectives of the borrower. lenders have also been able to control access to products in this marketplace without having to provide complete information regarding product availability and loan types to consumers. by the time consumers reach a housing counselor, they have already made a decision about which loan to pursue. consumers need more information upfront about the full range of products that are available. hud should also conduct a study

on purchase fraud to determine its prevalence and should develop stronger consumer protections for borrowers who engage in the purchase transactions. finally, aarp urges the consumer financial protection bureau to conduct a study on the appropriate marketing of fha insured reverse mortgages. recent changes in the marketing of these mortgages indicate a shift from advocating their use as a tool to help older americans age in place to a financial planning tool to be used as a type of investment portfolio insurance when investment values fall. way, tot it in another hedge their portfolios. another suggested use has been as a means to finance a delay in filing for social security benefits. here consumers are encouraged to leverage their homes to be able to collect higher social security benefits later. a risky strategy at best. making changes to the program to ensure its long-

term sustainability and to protect both borrowers and taxpayers. we strongly believe that the program changes should occur through the regular public rule- making process. consumers, stakeholders, and the general public deserve to have the opportunity to provide comments on proposed rules. continuation the of the program, and we look forward to working with congress and other stakeholders to ensure that older americans can tap their home equity with government insured reverse mortgage loans that enhance their ability to age in place. thank you for the opportunity to share aarp's views. i would be happy to answer any questions. >> ms. williamson? , ranking member, and members of the subcommittee, thank you for the opportunity to testify regarding the long-term sustainability of reverse mortgages and the program's impact on the mortgage

insurance fund. we offer our testimony on behalf of our low income clients. reverse mortgages can enhance the economic security of older homeowners, especially those who lack sufficient income or assets to meet their everyday needs. the very purpose of the program as outlined by the statute is to reduce the effect of economic hardship caused by increasing costs of health care and housing and to provide for subsistence needs at the time of reduced income. when used as designed, reverse mortgages allow older homeowners to age in place and remain in their community indefinitely until they need skilled care or other housing. , however, areges expensive when compared to other options. the cost and terms are not easily understood by even the most sophisticated consumer.

the challenges consumers face in the reverse mortgage market have only increased in the past two years as the long-term costs of the loans have increased and the range of options offered has become more complex. thousands of older homeowners have taken out reverse mortgages that are unsuitable to meet their needs. many such homeowners facing premature eviction from their homes because they often do not have sufficient resources to pay for taxes and insurance to maintain the property or to meet unexpected expenses. the long-term sustainability of reverse mortgages and the program will depend on how we address the risks that are posed by the aggressive marketing and sale of these complex financial products to older americans. strong protections for consumers are essential to minimize the risk of default and fraud. fullyport efforts to fund and strengthen the quality

and content of the counseling that is provided to homeowners. however, counseling alone is not adequate to protect consumers. without additional protections, the older homeowners the program is designed to help will be seriously harmed, and the program will continue to be destabilized and weekend. hud has stated it will take action and the near and long- term to ensure that consumers are protected and able to sustain the reverse mortgages and to better protect the fund. we support their efforts in this regard and urge even more action to better protect consumers in the marketplace. specifically, we recommend that hud make changes to the program to ensure that future borrowers are able to -- are able to afford property taxes and insurance on an ongoing basis. that existing homeowners facing default are given a better opportunity to stay in their homes. in addition, protections must be

added to the program to prevent the eviction of the non- borrowing spouse. these are often the younger spouses of the homeowner who is titled on the mortgage. homeowner for whom the program was designed will strengthen the economic value of the program and stop the depletion of resources from the fund. in conclusion, we believe that reverse mortgages provide a real benefit to many older homeowners struggling to meet day-to-day expenses. however, these mortgages are complex and subject to abuse, and stronger measures are needed to protect consumers, stabilize the program, and prevent further depletion of the fund. thank you, i look forward to your questions. >> thank you. , ranking member, esteemed members of the subcommittee, my fellow witnesses, on behalf of the national council on aging, i appreciate the opportunity to

testify today. we are a nonprofit service and advocacy organization whose mission is to improve the health and economic security of millions of older adults. the product is an important tool for retirement planning. with the right consumer protections and comprehensive counseling, it can be a lifeline for some older adults allowing them to age in place with. today i'm here to talk about ways to sustain and improve the program and the required counseling. if i may, i would like to start by sharing a brief note from -- of our counseling clients after completing a recession today, i breathed a sigh of relief. i told my son that it feels so good to have someone who is advocating for me instead of for the company. i understand so much more after speaking with you. i absolutely agree that reverse mortgages are not for everyone. but after listening to you, after all of my research, i think i am a good candidate.

my remarks today are grounded in our research and our experience with the counseling intermediary assisting older homeowners. there are three issues that i you discuss -- first, as examine the program, remember it was designed for seniors with modest incomes, many of whom are underserved by the financial industry. we estimate that about 44% of reverse mortgage borrowers have income below 200% of the federal poverty level or roughly $23,000 annually for a single individual. changes to the program should not come at the expense of seniors of modest means for whom the program was originally designed. , there islive longer an increasing responsibility to adequately plan for future financial security and home equity is a part of the solution. the issue for many low to modest income seniors today is not whether to tap this asset,

but when and how. older homeowners considering alone, many of whom are widowed or divorced, do so for many reasons, including additional income, to plan ahead for emergencies, and to pay for home repairs or improvements. these loans can help people stay independent longer. second, the program's counseling is critical. access to unbiased counseling ensures that consumers are protected. forave been a intermediary six years. we view our role in consumer education to be of utmost importance. growing numbers of older homeowners will need titans on reverse mortgages, so we urge you to adequately fund counseling. additional support for research using the data collected through the counseling process will help strengthen consumer protections and reduce the risk of loan default. as the baby boomer generation ages and the age for reverse

mortgages declined, we know that these loans are becoming a part of retirement planning. of course, borrowers must meet their ongoing obligations including paying property taxes and insurance. however, it will be important to ensure that changes to the program, such as financial assessments, tax insurance set- asides, or limitations on the upfront draw, do not become overly restrictive. third, increasing the strength and sustainability of the program requires greater consideration for counselor training. as policy changes impact the industry, adequate time and resources for counselor training must be considered. hud has made important improvements to the counseling, strengthening the consumer protections. recently, hud made it easier for homeowners to learn about public and private community benefits by requiring counselors to offer a benefits

checkup screening. this has helped identify over 370 $8 million worth of annual benefits for seniors, -- $378 million worth of annual benefits for seniors. for those who have difficulties paying property taxes or -- itnce, the screening also screens for prescription drugs, utility, food, and transportation assistance. the average potential borrower identifies over $5,000 in annual reoccurring benefits. thatnclusion, we believe the long-term viability of the program will be enhanced through a balanced approach that ensures strong oversight but also supports continued collaborative research and development. we need strong consumer protections but also want to give the older homeowner the flexibility to meet their evolving financial needs. we thank senator menendez for his leadership in the introduction hud of his bill

which would give the tools it needs -- which would give hud the tools it needs. thank you for the opportunity. i welcome the opportunity to answer any questions you may have. >> mr. bell? ,> mr. chairman, ranking member thank you for convening this hearing. the issues surrounding reverse mortgages bring a key question into consideration -- how do we finance longevity? most americans have inadequate savings. homeowners had at least 55% of their net worth tied up and home equity. this program is a critical tool for utilizing that equity. i was asked to address five topics in five minutes. challenges.matic the complex economic environment has had a significant impact on how homeowners utilize reverse mortgages. individuals approaching retirement, and sells unexpectedly out of jobs

prematurely and facing mortgage pirg -- portage payments they could no longer afford. while this strategy has helped some, it has also caused stress to the program. the combination of upfront lump sum draws and diminished income from job loss left some borrowers challenged. diminishedd with home values, the program has experienced new stresses previously unforeseen as a result of this confluence of factors. consumerddress protections -- the program has several important consumer protections in its design. every borrower must go through a counseling session prior to submitting an application to a lender. the program also has several consumer protections including disclosures and limits on fees. that being said, three changes that hud would like to implement would not only

protect the fund but also provide another level of consumers.or these provisions might preclude some applicants from obtaining the loans. however, these changes are designed to eliminate prospective borrowers who are less likely to have a successful experience. benefits of loans to seniors who are able to age in place -- america faces a growing crisis. by 2030, there will be 72 million adults 65 and older accounting for 19% of the population. social security replaces only 40% of pre-retirement earnings. most americans have inadequate savings to sustain themselves through retirement. , homeownerss utilize the loan to pay off an existing mortgage so it could be used for other expenses. other homeowners are establishing lines of credit as a standby way for expenses they

might have trouble paying otherwise been some utilize the loans to make improvements to design to create an environment in which they can age in place. some borrowers receive fixed monthly payments to supplement their other income. on the -- the impact mutual mortgage insurance fund and potential changes to protect taxpayers -- the program was the product of much forethought, and the designers did a tremendous job in developing a flexible loan product. what cannot be foreseen when the program was conceived was the deep drop in home values that recently occurred, coupled with widespread losses of jobs. this occurrence led to an increase in the number of borrowers utilizing the program in emergency situations. to do with the stresses this has created, hud would like to implement three changes. financial assessments of loan applicants. this would be a form of underwriting. that theain prospective borrower has sufficient resources to meet their obligation to pay

property charges including taxes and insurance while having enough money left over to cover normal living expenses. second, principal limit utilization restrictions. loans perform best when funds are drawn down slowly over a long. of time. -- long period of time. a disproportionate number of loans.rs have drawn down a principal limit utilization restriction would allow borrowers to pay off existing liens plus the cost with associated getting a loan. this is a sensible change that will lead to a higher degree of success among borrowers and reduce the risk to the fund. tax andet-asides for insurance to help avoid situations where borrowers are unable to pay. a set-aside is essentially the

reverse mortgage equivalent of an escrow in a forward mortgage. five, other opportunities to improve their home equity conversion mortgage to ensure long-term sustainability for the program -- the changes to the program under consideration should address the shortcomings that have been identified. the challenges that these changes must be made made by full regulatory development process -- this typically takes a year and a half or more to complete. the most productive action congress can take right now is to provide hud the authority to make changes on an expeditious basis so it has the ability to respond in real-time as it observes trends in the economy and patterns of behavior among borrowers and lenders. the house recently recently passed a bipartisan bill to do this, and senator menendez, your bill would do the same. some are concerned with investing too much authority with fha by granting them the ability to make program changes in lieu of regulations. i do not share this concern. i have worked with hud on issues

for 15 years and have always found the department to be a responsible steward of the program. hud has collected feedback and consulted with stakeholders before modifying any procedures. i have no reason to doubt that such responsible leadership would continue if they are given the authority to fine tune the program as program performance requires you to do so. thank you for the opportunity to appear here today. thank you for your of the program over the years. i crocheted the opportunity to be here. -- appreciate the opportunity to be here. >> let's explore some of the issues. andow items of conversion items of die version and -- diversion in terms of views. let me see where those ,ifferences might be broached if possible. this is an important program because with the aging of america, the exploding number of who clearly would

look to use the equity in their home as a continuing security for themselves, and to be able to age in place, that is of value in our society. we need to get it right. it has beenect, brought to congress's attention -- some of you have mentioned of youupport, and some have mentioned it in opposition -- i would like to flesh it out a little bit -- that assessing an applicant's finances may help lenders provide better product options, though it may keep some households from receiving access to what is a popular program. and lenders develop an assessment framework that balances hud's fiscal solvency issues with their access to borrowers?

what do you believe or should be some of the factors that should be addressed when a borrowers ability to pay back or to afford alone? i open it to anyone on the panel. mr. bell? iswhat we are talking about creating a new type of underwriting that is different from forward -- forward mortgage underwriting. what you look at and forward mortgage underwriting is the income coming in and the payments and you basically see whether it is within a ratio that is acceptable, that the payment does not consume too much of the borrowers monthly income. when we are dealing with retirees, it is a different picture. there might not be income. it might just be assets. not we are looking at is an income underwriting but rather a cash flow underwriting. the concept that is emerging is what we refer to as a residual cash flow analysis.

we start with the sources of income -- there might be social security, pension, income from employment -- then we look at the assets which are presumed to be spent down in a straight overbasis over the use -- the expected life expectancy of the borrower using the same lifespan that is used in the disclosure. thatwe add in the funds would be available from the reverse mortgage. let's say cash flow coming in -- from that, we would look at the costs for taxes and insurance, deduct those out, and what we see is a residual cash flow. the question becomes, is that amount unbelievable amount, can somebody live on that amount of money left and cover all their other expenses? that would be a very subjective decision if we left it open for

each lender to make that decision. our recommendation is that there is a standard for this in va underwriting. income out an amount of that is required or what expenses are for various quadrants of the country. we would use that as the remainder. if the balance -- if you take the income and assets and you , isct the property charges that amount (system with what da says somebody needs to live on? loan.is, we can make a if not, we need to dig further. it might turn out that that is negative. the individual may be eligible for food assistance which would eliminate the need to pay that were there may be, even though we subtract taxes, they may be eligible for a tax deferral program. we would be able to add that back in. but the concept is to create

this residual cash flow analysis so that we could ascertain the likelihood of success for a prospective borrower. listen to your testimony. use of the changes should not come at the expense of modest income seniors. do you think that that approach that mr. bell described would meet the concerns of your association? >> we feel that if the financial assessment does account for the access to benefits programs that were mentioned, food assistance, utility assistance, property tax relief, if that were considered along with the income, the assets, that it would ensure modest means individuals would still have access to the tool. as i mentioned, the average potential borrower going through counseling identifies about 5000 dollars worth of annual reoccurring public and private community benefits. if you factor those benefits into the equation of what they have available to ensure the

sustainability of the program, i think we would adequately foress and remain viable modest income individuals. >> does anybody else want to opine on this? i want to extend the time a little bit more and i will turn to senator moran. >> i just wanted to comment -- we too would support using the va's residual income test with one key distinguishing factor. that is we would look at actual benefits that the homeowner received, not theoretical. even though they may qualify for a particular program, that does not mean that after the application they will receive that benefit. if they do get that benefit, then it should be considered. >> let me ask -- most reverse mortgage loans are heck am loans, and the insurance

loaners fromects losses. the actuary said that without the loss protection provided by fha insurance lenders would need to increase interest rates or reduce the amount of equity borrowers can access in order to cover the financial risk proposed by reverse mortgages. what would be the impact on senior borrowers if the fha loss protection was in fact lost? mr. bell? bute did have a fledgling growing proprietary reverse mortgage market before the crash and property values a few years ago. there were some very good attractive products that were brought to market. however, they fell short by doing a much more conservative loan-to-value. a lower loan-to-value works well with a higher value home, but

if you apply a lower loan-to- value to the lower value homes that we do under the program, you really are not coming up with enough benefit to pay off the existing indebtedness that people typically have on their properties. therefore, you're unable to service them. the proprietary market really serves homeowners with homes that had values approaching $1 million and upwards. $800,000,ses, perhaps but for the most part, it served the higher end of the market. you just do not get enough benefit with enough security to entice investors if you do not go that conservatively on your loan-to-value. >> senator moran? >> thank you, chairman. how many lenders are in the reverse mortgage business? is this a wide group of businesses of lenders? there are roughly, i believe,

about 1200 companies who have originated alone in the past year or so, however, the large majority of them -- a large majority of them have done a handful of the loans. the top 40 lenders in the market probably account for upwards of 50%. >> is this the primary business of those lenders? >> it is a mix. some are specialized companies that focus on serving seniors and their communities. , credit unions, mortgage companies that offer an array of products, but because they do have clients to whom the loan would be beneficial, they choose to make those available. >> how does a typical senior access this program? what is their entrance into originating alone? >> they have two entry points. they could start by talking to blender -- a lender.

they may read an article in the newspaper, an ad on television, they may talk to people, they may be referred by somebody at a senior center. they will go in and talk to a lender first. sometimes people go directly to a counselor first. a lender can explain to somebody how the loan works and can take some preliminary information from them to show them how it might work in their case, but we are not allowed to actually take and process a formal application nor are we allowed to have the prospective borrower in kerr any until they go out to counseling and meet with an independent counselor at an approved counseling organization, complete the counseling, and return to the lender with a certificate signed by both the counselor, and when the prospective borrower basically signs that certificate themselves, then

they turn it to the lender. that can begin the process. >> that means that every borrower, every single borrower has to have counseling before they could ever -- >> before they could formally apply, and before they could actually be subject to any expenses whatsoever. once they have been through counseling, if they choose to go ahead, then they return to the lender. to turn over the counseling certificates. at that point, an appraisal is done. everything is based on the value of the property. prior to that, there is no exact -- there is no knowledge of exactly how much money will be available. it is pretty much hypothetical at that point perhaps based on some statistical analysis of what the property is. until they come back from counseling, we do not -- we are not able to incur the expense of the formal appraisal to really give them a formal proposal and have them make the full application. witnesses --other

the indication by mr. bell was that some people see a counselor first -- how does that relationship develop? >> as the only national hud certified intermediary providing counseling, we work very closely with area agencies on aging, aaa, and aging and disability resource center's. our goal is to get the word out early and often to ensure that the product is not an emergency crisis management tool. arearea agencies on aging out in the community. they are the designated planning entity in a community as it relates to aging services. they are providing older americans across the country support on a regular basis. through their outreach efforts, they talk with their vulnerable older adults about a range of public and private economic assistance options. we try to get them to engage

older adults early to have a conversation about what the loan program is, what it means for their economic security, and when and how they might imbue the loan into their financial planning. more often than not, those that come to our area agencies on aging to receive counseling have already been touched by a borrower, but our goal -- >> a lender? >> excuse me, lender. our goal is to provide some basic outreach so individuals -- so individuals can learn about the tool before they are touched by a lender. citizen inenior kansas, would they have an option of discussing this with somebody at the area agency on aging, somebody at the site, somebody at a seminar -- if you want your local community bank across our state, would somebody be there to describe this mortgage, or is it more likely -- my assumption is that you see the ad on television, you

get something in the mail -- what do you do with that? does the typical senior pick up the phone -- i assume there is a one 800 number -- >> lenders are required to share non-nationaln all intermediaries providing the counseling. we have a one 800 number. we also have information on our website. when a lender touches a potential borrower, they are encouraged to inform them of all their counseling options. >> this may be for mr. bell -- i do not mean to have you dominate the answers to my questions -- what are the underwriting standards? why is a loan made to somebody who is unable or unwilling to pay for their insurance on their home or taxes? is it that it starts out they are capable, that the analysis done by the lender indicates that the payments will be made for taxes and insurance, but

financial conditions change? >> yes, that is often the case. of the universe of loans in default now, one third of them are tax defaults. one third are insurance defaults. one third are a combination of the two, roughly. the insurance defaults tend to be in places like florida after hurricane seasons when insurers have either dropped clients, dropped out of the market, or significantly raised insurance rates. the flood areas in the midwest. often times we find the insurance defaults are a function of them having the inability to obtain the insurance. not necessarily through any willfulness. tend to ine underwriting, most lenders take a look at their history of paying their taxes, and if there have been problems, they may

choose to pass on that particular borrower. payingthey have been them all along, there is no reason to determine that they might not be able to pay them, since their financial situation should presumably be enhanced as a result of getting the loan program and the current mortgage payment that they have. >> what is the average amount of the advance under a reverse mortgage? >> it really varies. what we start with, a little bit technical -- we start with the concept we call the maximum claim amount, which is essentially the value of the property at the time the loan is made, and everything is calculated off of that. that is also the largest amount that fha will end up hating in a claim. ,hat is were fha's liability that is the maximum they are allowed to pay. from that, we have what is ,alled a principal limit factor

which is a percentage of that value that is available to the individual borrower, and that comes from a table that hud provides. what that table has on one side, it has every possible interest .ate, 5%, 5.2 five percent across the top, every age. the table gives us the percentage of value at the particular interest rate used to -- they may have their fees to the loan deducted. they could say i want to take it all or take six monthly payments or any combination thereof. >> is there a maximum amount that hud guarantees? >> the lesser of the actual

value of the property or the fha national loan limit. if the home is worth $400,000, that's the value. >> $625,000 is the maximum. >> that is 150%. >> just a couple of final questions about taxes and insurance. why would it not make sense to include as in a typical mortgage payment, taxes and insurance

that seniors do not find themselves at the end of the day hit with his challenge? >> we are not collecting mortgage payments on a monthly basis. the reverse mortgage does not have a monthly payment feature. there would be a significant cost to putting that in place. it raises a number of other issues. >> the collection of it would have a cost. >> if they borrow does not pay their insurance, that is a default situation. the lender is required to advance the taxes on behalf of the borrower and ask them to get in touch and create a payment plan. the lender is required to

request permission to accelerate because that is a default. if we would move to weigh in escrow, if the borrower misses the march payment, where are we? what does that mean? june, they miss again. there is a lot of questions about how you handle defaults. the reverse mortgage counterpart is what we call a set aside. we do set asides for other things. if there is $15,000 of repairs, we set aside some of the funds that would be available and the owner can use those funds to make those repairs.

what is being discussed is a set aside. it remains to be seen whether you do that through the life of the loan. then you are reducing the benefits of the borrower. at least you have some other resources to work with what you try to mitigate the situation. basically work with the funds available through a set aside. >> how do others feel about the set aside? >> we would want consideration for those who are enrolled in property-tax relief programs. it is more economical to stay in the home. for those that are eligible, we would want to make sure that is

a part of the set aside formula. >> we would support having it set aside, a special for the homeowners to pay the property charges, so we would support that as well. >> we support the concepts. some of the highest defaults are in queens, new york, where the property taxes are high. you may eliminate the loan proceeds entirely. we believe that should involve public input. >> i want to make it crystal

clear that every bar has the first go through counseling before they qualify. you support counseling and you said counseling is not enough to protect seniors. >> one of the -- i work on reverse mortgages and we conducted a survey last august. it was sent to thousands of older advocates nationwide. we received responses from well over 100 reverse mortgages counselors. there is tremendous pressure from lenders when consumers walk-in to their office on a variety of issues, some of which we have highlighted in our testimony today. one is to pressure to remove the

often younger spouse from the title to the house so that the older spouse can get a larger amount of proceeds. those homeowners are inundated with pressure from the lenders and other originators to see that this is a good idea. they are hardly understanding that the risk of doing that is that when the spouse on the mortgage dies, the younger spouse would be evicted. homeowners are counseled and if they follow up two or three months later, they are oftentimes surprised that the homeowners expressed an intent to take out an adjustable rate but instead they won with the fixed rate option. they are surprised the homeowners later on are not able

to keep up with the property taxes and insurance. we think that strong and effective counseling is necessary, we think that is not enough and there should be more protections added to the program to protect consumers in every aspect of the lending process. >> any other views on that issue? >> there is a required aspect of the counseling. the counseling has a protocol that is required. the interview on tool was implemented recently. the intent is to inform and ask questions with regard to the potential borrowers' intent and there is a 60-day follow-up. if we take a closer look and spend some time going through the data, that could informed some of the indicators in regard

to the defaults. a closer look at some of the data collected through counseling so that we can begin to develop a data driven understanding of the risk factors. >> i would like to follow up. her indication is this is something lenders are leading borrowers into inappropriately. the issue is a subject of a lawsuit right now that is being handled by the aarp foundation. our organization has filed an amicus brief on this. we have done quite a bit of

research. we have filed along with our brief a number of affidavits from borrowers who have said they have done this for any number of reasons. they have decided to remove a spouse from title. oftentimes one member is under 62 years old but they are still facing foreclosure on their current mortgage. the have to remove title to be able to stay in. other times they need a larger amount of money. one member could be 66 and another is 72 and there is more money available at the age of 72. this is a conscious decision that gets made for purposes of generating the larger amount of money. we do not take it lightly. lenders for the most part do not

like doing this. we encouraged them to discuss this with their counselors. we have them write a handwritten note explaining that they are doing this and why. we filed examples of all of those, along with our legal brief. it is a tough issue. there are a lot of reasons people do it. it is not necessarily a sinister thing that goes on within the industry. >> which brings me to one of three last questions. counseling seems to be not only a necessity to qualify, but so important. do we have enough resources for counseling for people in the country? >> unbiased counseling is essential. this is unique in that the

counseling is required. we need adequate funding to be appropriated to ensure that we have no cost, low cost available counseling for consumers. in the current marketplace, it is a mixed result. some of the counseling intermediaries to charge, and you get what you pay for. they charge with various rates. down to $175 for a counseling session that is intended to be robust. our counselors are proud of the fact that counseling sessions often take 90 minutes or more to go over the full range of issues and implications. with limited amounts of housing capacity dollars, our capacity has shrunk. therefore, some of the counseling intermediaries must charge, and that does play implication. >> i wanted to weigh in from a

different perspective. housing counselors are not allowed to give advice or make recommendations to borrowers. their role is to educate. lenders have the ability to recommend and suggest and say whatever they would like to the borrower, but the counselors are restricted in that regard. it is important to understand counseling is a vital tool, but the counselors' hands are tied as to what they are able to say to a borrower. >> but if they give them a 90 minute session in which you talk about the range of considerations you should have, i would think, would be pretty significant. if we were to use your terms, untie the hands of counselors, we would also have to worry about a counselor or counselors who would want to lead a potential borrower to a certain

product. >> right. i mean, it's a mix. >> anyone is welcome to answer. as the housing market rebounds, is that going to take off some of the pressure, or create greater opportunity? obviously, you have referenced several times that part of the challenge has been a housing market that has lost value. what does that mean for this program? >> certainly, recovery in housing values helps shore up the value of the funds. hecm is unlike a mortgage where the balance is going down. in a reverse mortgage, there is no payment, and the balance is going up.

to the extent that the home appreciates over time, you have a greater cushion, higher collateral. of course, rising home values will put the fund in a much stronger position. >> finally, for any of the panelists -- i have my own idea of what this is, and i think it is pretty universal, since we are developing a record -- why is a program like this a good public policy? what does it mean to all of us as a government to allow people to age in place, versus maybe end up having to seek either public housing or a nursing home, or an assisted living facility, to which the government would many times contribute. >> hecm really is an example of a public-private success. fha insurance provides protection to all stakeholders.

the ability to allow a modest individual to supplement their fixed income allows them to age in their home, as most seniors desire, and often staves off or avoids institutional care, which often has implications for medicaid. it is a cost-efficient solution that allows our seniors to stay in their community, mixing public and private support. >> is the only recourse on a reverse mortgage loan the equity in the home? there is no personal liability upon the death or departure of a person from their home? >> that is correct. it is a non-recourse loan. >> i did not get an answer to the average amount of a reverse mortgage, but what is the cost

of a reverse mortgage, as compared to the cost of a traditional mortgage? if i borrow $100,000 on my home, or i am a senior and get an advance of $100,000 in a reverse mortgage transaction, are the interest rates comparable? are the origination costs similar? >> they are very comparable. they will have similar costs associated with them. there is an origination fee, which is formulaic, a formula set by the congress, with a maximum of $6,000. it is two percent of the first 100,000 dollars of value, with a cap of $600,000. there are normal costs for appraisal, title recording, and interest on the loan.

the interest rates, depending on what type of loan people choose, will be more or less comparable. >> are interest rates fixed or variable? >> the consumer has a choice of fixed or variable. fannie mae holds those in portfolio. as they received a mandate from congress to begin reducing assets, they backed away from the reverse mortgage business. there was a hecm put in place, which offered fixed rates, which seniors, by and large, seem to want to get. people who remember the 1980's my mortgage was 16.8%. people may be afraid of variable rates, although it may be more advantageous for the borrower. here is the catch.

to get a fixed rate, the borrower has to agree to take down all the funds upfront.